Tag: economics

It’s quite common for stupid and self-righteous conservatives to object to student loan debt cancellation on the basis of “personal irresponsibility”, moral hazard, and the fact that the student signed the loan contract. But as Zippy Catholic points out, Thomas Aquinas conclusively answered that objection a long time ago.

Accordingly we must also answer to the question in point that it is by no means lawful to induce a man to lend under a condition of usury: yet it is lawful to borrow for usury from a man who is ready to do so and is a usurer by profession; provided the borrower have a good end in view, such as the relief of his own or another’s need. Thus too it is lawful for a man who has fallen among thieves to point out his property to them (which they sin in taking) in order to save his life, after the example of the ten men who said to Ismahel (Jeremiah 41:8): “Kill us not: for we have stores in the field.”
– Thomas AST II-II, Q78, A4):

Since borrowing at usury is inherently scandalous, it probably depends on the extent of the need. But you’ve got pretty wide moral discretion to hand over your property to thieves, so you’ve probably got similar prudential latitude here.  As a matter of intrinsic morality, usury – insisting on interest when making a mutuum loan – is a sin on the part of the lender, not the borrower.

The lender is the wrongdoer, not the borrower. Therefore, there is no moral hazard created by cancelling student loan debt, unless the government then proceeds to bails out the lender. It is bailouts, not debt cancellations, that are both immoral and morally hazardous by nature.

It’s not often that I agree with socialist economics, but in this case, my only disagreement with Michael Hudson’s argument is that we are quite obviously already in a depression. It’s too late to avoid it, but a debt jubilee – as commanded by the Bible – is both a way to end the depression and free the productive classes from the chains of a relentlessly rapacious and entirely anti-productive financial elite:

Even before the coronavirus appeared, many American families were falling behind on student loans, auto loans, credit card balances and other payments. America’s debt overhead was pricing its labor and industry out of world markets. A debt crisis was inevitable eventually, but covid-19 has made it immediate.

Massive social distancing, with its accompanying job losses, stock dives, and huge bailouts to debt-strapped corporations, raises the threat of a depression. But it doesn’t have to be this way. History offers us another alternative in such situations: a debt jubilee. This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts.

The word Jubilee comes from the Hebrew word for trumpet — yobel. In Mosaic Law, it was blown every fifty years to signal the Year of the Lord, in which personal debts were to be cancelled. The alternative, the prophet Isaiah warned, was for smallholders to forfeit their lands to creditors: “Woe to you who add house to house and join field to field till no space is left and you live alone in the land.” When Jesus delivered his first sermon, the Gospel of Luke describes him as unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.

Until recently, historians doubted that such a debt jubilee would have been possible in practice, or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis) and communities would have been prone to attack from without.

The parallels to the current moment are notable. The U.S. economy has polarized sharply since the 2008 financial crisis. For far too many, the debts in place leave little income available for spending on goods and services or in the national interest. In a crashing economy, any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 can only further split our society.

The way to restore normalcy today is a debt writedown. The debts in deepest arrears, and most likely to default, are student debts, medical debts, general consumer debts and purely speculative debts. They block spending on goods and services, shrinking the “real” economy. A debt writedown would be pragmatic, not merely a moral sympathy with the less affluent.

Financialization does not help the economy by making it more efficient. To the contrary, it makes the economy far more fragile while destroying the underlying society for the benefit of a few foreign invaders.

It’s fascinating to see people preaching against “hoarding” when they have no problem with debt-funded purchases. Both involve pulling the demand curve forward, but debt is considerably worse than hoarding because you’re making the purchases with money you don’t have.

And yet, people have no problem when it’s done in the much more harmful manner, mostly because they don’t understand the underlying mechanics or the inevitable consequences. Whereas, they are capable of grasping the cause-and-effect resulting in an empty shelf at the local supermarket.

Five percent, 24 percent, it’s hard to say exactly:

Goldman Sachs predicts the coronavirus crash will be bigger than it originally thought. In a Friday research note, the bank projected a 24 percent drop in the U.S. GDP in the second quarter — a stark revision from its prediction of a five percent drop earlier this week. 

Even that’s not going to be enough to clear the outstanding debt issue. But the important thing is not the size of the estimated contraction, it is the fact that the margin of error over the course of less than a week is so massive.

Meanwhile, the federal government is about to prevent Americans from travelling out of the country. Curiouser and curiouser….

The State Department is preparing to issue the strongest travel advisory it can, two individuals familiar with the decision told Politico Thursday. It’ll tell Americans abroad to either return to the states or prepare to shelter in place — a Level 4 advisory, those sources said.

China and Mongolia are currently the only countries subject to a State Department level 4 travel advisory due to spread of the new coronavirus. The rest of the world is under a level 3 global health advisory, which suggests travelers reconsider their plans. The escalated level would instruct Americans to halt all travel out of the country; Secretary of State Mike Pompeo has approved the measure, Politico reported.

They will never fix anything no matter how sternly they are warned about “the consequences next time”. After the last round of bailouts, all they did was double down on what they were doing prior to 2008 and continue their financial rapine without restraint. All the paper wealth everyone “has” is nonexistent, it’s just multiple claims on the same underlying property that allows the financial elite to skim off the incessant churn and turn it into stronger property claims. And that is why every debt-based system always collapses over time, as the current financial system is in the process of doing.

Before sunrise this morning, a normally calm and very senior Wall Street banker texted me: “All hell is about to break loose. No safe havens.” His text could not be ignored, coming as it did on the morning after hedge fund manager Bill Ackman’s 28-minute cri de coeur to CNBC yesterday, during which he essentially demanded that the U.S. immediately shut down for 30 days to stop the spread of the coronavirus. What was he talking about, I asked….

Now, apparently, the scourge of interconnectivity is back. Companies are drawing down their lines of credit with abandon. The senior banker seemed to be especially concerned about the portfolios of private equity companies, which are by definition mostly piled with debt and therefore at higher risk of default as the economy contracts. The big worry now among private equity types is that the $1.5 trillion or so of so-called “dry powder”—money that is sitting unused in their coffers or on-call from their limited partners—will now be needed to shore up existing portfolio companies with acute cash needs, rather than for new investments, which would be the preferred course of action in a more normal time, especially with stock prices down around 35{de336c7190f620554615b98f51c6a13b1cc922a472176e2638084251692035b3} from their February highs. The big worry currently is that the limited partners of private equity funds have enough of their own problems that now they won’t be able to honor their capital calls as they start coming in from the general partners.

That’s yet another scary thought: the domino effect of one private equity portfolio company after another getting into trouble could well be a further negative catalyst to an economy already on the brink of collapse. If one private equity portfolio company after another slips into bankruptcy because limited partners don’t make good on their capital calls, that could mean hundreds of billions more of creditor and shareholder losses.

This is why usury was banned by Christendom and is prohibited by the Bible. I warned everyone back in 2008-2009 that if the banks were not permitted to fail, the next failure was going to be more difficult. It’s really not hard to see these things coming, as the patterns of the crisis developing are easily recognizable. And the bigger the bank, the more internationally interconnected it is, the more likely it is to be taken down by the “unexpected” collapse of the system which will likely begin with the failure or bailout of a massive, well-respected institution like Deutsche Bank.

Another financial crash will likely begin later this year, and for much the same reason as 2008

It might sound like a risky strategy at a time when millions of Americans are drowning in debt: keep raising the limit on people’s credit cards, even if they don’t ask. But that’s exactly what big banks have been doing lately to turbocharge their profits, leaving customers with the potential to rack up even bigger monthly bills.

For years after the financial crisis, Capital One Financial Corp. resisted that step for customers who looked vulnerable to getting in over their heads. In internal conversations, Chief Executive Officer Richard Fairbank characterized the restraint as a radical theology, in part because it went beyond post-crisis requirements, according to a person with direct knowledge of the discussions.

But then Capital One — known for its “What’s in Your Wallet?” slogan — reversed course in 2018, after the bank came under pressure to keep revenue growing. The company’s revenue reached a record last year.

The same reversal is playing out across U.S. banking, as more customers get unsolicited access to additional credit, in what’s becoming a new golden age of plastic. The goal: to get consumers to borrow more. The question, just like in the heady 2000s, is how it will end for lenders and borrowers alike. Research shows many consumers turn higher limits into debt. And the greater the debt, the harder it is to dig out…. Outstanding card borrowing has surpassed its pre-crisis peak, reaching a record of $880 billion at the end of September, according to the latest data from the New York Fed’s consumer credit panel. 

Unfortunately, it’s not possible to correctly compare the amount of total debt to the situation in 2008, because the series that dated back to WWII and proved so informative was significantly modified and rendered considerably less useful by serious revisions to the state and local government sector.

Even so, the modified version shows that total credit market debt outstanding is now at the same level that it was in the third quarter of 2007. The intervening 12 years have been a period of debt disinflation, essentially a period of treading water with debt growing too slowly to artificially grow the economy but also not being cleared. For the inflationistas, this was the attempt to print their way out of the situation.

As I said back in 2008, it didn’t work because it can’t work. You can print paper, but you cannot print debtors or debt. Sooner or later, a lot of the debt will be written off, because mathematics dictates that the interest payments will eventually become unsupportable.

That isn’t to say that it is a GOOD option or the best option available. But it is a better option than continuing the post-1965 trajectory of driving the price of labor ever downward in order to keep the usury pumps going:

Every single economic policy change since about 1990 has had two primary effects:

a) lowered real wages through increased labor market participation and/or lowered demand for labor
b) increased the value of fixed assets or investment instruments

In other words, if you were “holding” in 1987, when the oldest Boomers were forty and the youngest were twenty-five, you’re golden now. If you were just starting your career in 1987, you were racing against time. If you’re starting today, the deck has been stacked against you higher than you’ll ever clear. Want to live the middle-class life of 1975? Better hope your IPO nets you ten million bucks. The wealthiest of the Baby Boomers deliberately created a world in which they’d pay less for the things they wanted (employees, labor, televisions) while being paid more for the things they owned (real estate, index funds, 1959 Les Pauls, 1985 Porsche 911s). It was a hell of a trick, wasn’t it?

Eric Chester looks at the hellscape generated by his generation and what he sees is that there aren’t any more paperboys. I look at it and I have serious concerns. I note that support for explicitly socialist government is growing by leaps and bounds. Some of my friends think this is because the Millennials are stupid. “Don’t they know that they won’t be the people who benefit from a communist government?” This is what I think the proto-socialists have figured out:

a) In the event of a Red Revolution in this country, they have a very slim chance of becoming part of the nomenklatura who have power, real estate, and freedom to determine their own lives.
b) If there is no Red Revolution, they have precisely zero chance of ever owning a home, saving for retirement, or starting a traditional family.

This is why the Nationalist Right is inevitable. This is why the globalist world order will fail, either in Nationalist ice or Socialist fire. And the painful economic reality is that either course will be more viable than the status quo. This explains the otherwise inexplicable appeal of Bernie Sanders. As awful as he is, the jewish socialist is legitimately a less horrific candidate than the jewish corpocrat.

A Swedish township is going bankrupt thanks to immigrants:

The Swedish municipality of Bengtsfors has petitioned the national government for aid due to massive costs incurred taking in more migrants than the municipality could afford. Local Moderate Party politician Stig Bertilsson said the multi-page letter was clear in identifying the cause of the budget deficit as being related to the large number of “new Swedes” taken in and requested aid to cover the costs, SVT reports.

“Costs in municipalities that have received new arrivals have continued to be substantial even when government revenues have stopped. This creates a large negative hole in the municipal cash register,” Bertilsson said.

When asked about tax revenues from new migrants that could bridge the deficit gap, Bertilsson said that in the long run he hoped there would be a rise in revenues but so far there has not been one, adding that the Swedish labour market “has a long way to go”.

Haven’t they taken the increase in their GDP into account? Don’t laugh, though, the US is also bankrupt and for exactly the same reason. The only difference is that the US can still convince people to accept its IOUs.

It must have been the Qanons who are surfing for illegal images on Paul Krugman’s computer. What other explanation could there possibly be?

Well, I’m on the phone with my computer security service, and as I understand it someone compromised my IP address and is using it to download child pornography. I might just be a random target. But this could be an attempt to Qanon me.

It’s an ugly world out there.

Ugly indeed. I had no idea that “Krugman” might be spelled with a silent “stein” on the end. Quick, look, Nobel Prize!

I wonder what he expects the Twitter Police to do about it?  Anyhow, one must admit that Paul Krugman’s intriguing combination of an OK Boomer grasp of technology with an Eichenwaldian defense is at least as credible as his economic theories.

From SocialGalactic:

“What do you call the emotion that is 50{de336c7190f620554615b98f51c6a13b1cc922a472176e2638084251692035b3} wanting to laugh and 50{de336c7190f620554615b98f51c6a13b1cc922a472176e2638084251692035b3} wishing to impose the death penalty?”

Ausführenfreude.

You won’t see these social costs showing up in the GDP statistics. But they are very real costs all the same:

In decades past, it wasn’t uncommon at all for the average family to know each and every one of their neighbors living close by on the same street. Those dwelling on the same block would regularly gather for holiday parties in the winter, and barbecues during the summer. As the years have gone by, however, people have slowly become more inclined to keep to themselves and shy away from even greeting or speaking to their neighbors.

Now, a new survey of 2,000 British adults shows the staggering extent to which the concept of a neighborhood community has fallen by the wayside. In all, 75{de336c7190f620554615b98f51c6a13b1cc922a472176e2638084251692035b3} say they consider their neighbors mere acquaintances at best. Sadly, nearly a quarter wouldn’t dream of knocking on one of their doors uninvited because there is “no sense of community spirit” in their neighborhood.

The survey, commissioned by Lottoland, also found that one in 10 modern adults mine as well be living next to an empty house as they only see their neighbors less than once per month. Still, four in 10 say they are at least “friendly” with a few of their neighbors, but still wouldn’t call them actual friends. The average survey respondent reports knowing the names of just five people living on their street.

Shockingly, one in 20 couldn’t name a single other person from his or her block.

Remember, this is the positive outcome for which the economists have been hoping. Maximizing output by moving all of the pieces around to their optimal production efficiency. Of course, it’s a short-sighted approach, because the societal instability and lower quality of life it creates more than outweighs the short-term economic benefits.